Cannabis Legalization In Key States Will Expand Retail Footprint

Key Takeaways

• Legalization momentum and expanding consumer acceptance are set to drive revenue growth and expanded product categories, with premium offerings gaining share.
  
• Operational efficiencies and disciplined financial management are improving margins, enabling sustainable growth and positioning the company for expansion in new markets.
  
• Intensifying competition, regulatory uncertainty, financial instability, persistent losses, and legal risks threaten growth, profitability, and long-term stability for Verano Holdings.

Catalysts

Operates as a vertically integrated multi-state cannabis operator in the United States.

• The ongoing shift toward broader legalization of cannabis in key U.S. states (e.g., Virginia, Pennsylvania, Florida) and upcoming ballot initiatives and political momentum create a significant growth runway for Verano's retail footprint, positioning the company to capitalize on expanded addressable markets and drive substantial top-line revenue growth as adult-use legalization occurs.
  
• Increased mainstream acceptance of cannabis as both a recreational and therapeutic product, combined with strong consumer demand and younger demographic trends, is supporting robust innovation in new product categories (e.g., new vapes, pre-rolls, health and wellness SKUs), which should boost recurring revenues and improve margin mix as higher-value and premium offerings gain share.
  
• Strategic operational improvements, including automation, cultivation efficiencies, and disciplined cost management, are already materially improving gross margins and Adjusted EBITDA, with continued focus on further efficiency gains that are expected to sustain higher net margin profiles relative to peers as scale increases.
  
• Prudent wholesale management and a focus on accounts receivable quality, while temporarily reducing revenue, are designed to create a more sustainable and less risky business model, setting the stage for wholesale revenue to gradually recover and grow from a stronger base, improving both cash flows and long-term earnings visibility.
  
• The company's readiness for international markets, as indicated by ongoing market exploration, and continued investment in M&A and dispensary expansion, provides optionality for future revenue streams and the ability to accelerate market share, supporting long-term earnings growth through both organic and inorganic means.

Verano Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verano Holdings's revenue will grow by 1.9% annually over the next 3 years.
• Analysts are not forecasting that Verano Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Verano Holdings's profit margin will increase from -40.8% to the average CA Pharmaceuticals industry of 0.6% in 3 years.
• If Verano Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $5.7 million (and earnings per share of $0.01) by about August 2028, up from $-345.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 280.4x on those 2028 earnings, up from -1.6x today. This future PE is greater than the current PE for the CA Pharmaceuticals industry at 22.7x.
• Analysts expect the number of shares outstanding to grow by 4.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.39%, as per the Simply Wall St company report.

Verano Holdings Future Earnings Per Share Growth

Risks

• Ongoing price compression and increased competition, particularly from the influx of dozens of new third-party dispensaries in key states like Illinois and New Jersey, are pressuring both wholesale and retail revenues and could lead to further deterioration of margins if market rationalization is slower than expected.
  
• The company's deliberate pullback in wholesale sales to mitigate accounts receivable risk has led to a significant decline in wholesale revenue (down 21% YoY), demonstrating both credit quality issues among retail customers and broader industry-wide financial instability, which, if prolonged, threatens Verano's overall revenue growth and cash flow outlook.
  
• Verano remains dependent on the future legalization of adult-use cannabis in major states (e.g., Pennsylvania, Virginia, Florida), and delays, unfavorable regulatory outcomes, or reversals in political momentum could severely constrain the company's ability to expand its addressable market and stall long-term revenue and earnings growth.
  
• Despite some operational efficiencies, the company continues to post net losses (net loss of $19 million for the quarter, up from $12 million QoQ) and faces looming debt maturities, increasing its vulnerability to rising interest rates or tightening capital markets, which could impact its ability to refinance debt or invest in growth, ultimately pressuring net margins and earnings.
  
• Ongoing litigation with Vireo presents contingent liability risk and may cause future, unpredictable expenses or financial exposures, while also diverting management's attention from core operations, negatively impacting overall profitability and long-term earnings stability.

Valuation

• The analysts have a consensus price target of CA$4.462 for Verano Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$6.01, and the most bearish reporting a price target of just CA$2.76.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $895.9 million, earnings will come to $5.7 million, and it would be trading on a PE ratio of 280.4x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of CA$2.05, the analyst price target of CA$4.46 is 54.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.